As he oversaw the final steps of the merger between two of
the largest participants in the global refractories industry,
Stefan Borgas, chief executive officer of RHI Magnesita, was
adamant that this was just the beginning.
"The industry should have strong players. We support the
creation of bigger entities, rather than a lot of small guys,"
he told Industrial Minerals during a recent
meeting in London, prior to the official listing of the new
company on the London Stock Exchange.
Headquartered in Austria, RHI AG and its Latin American
counterpart, Brazil’s Magnesita, completed their
merger at the end of October, following a year-long process
that required clearing from both European and Brazilian
The new venture brings a pool of more than 50 facilities
together globally, with a strong presence in the Americas,
Europe and Asia, as well as direct access to its own raw
materials such as magnesia and dolomite.
The prospect of competing against this group has prompted
worries from other participants in the refractories industry,
who shared their fears of struggling to keep up with such a
competitor at the recent conferences in Santiago, Chile, and
And yet, the industry should and will consolidate further,
according to Borgas. "RHI Magnesita will have about 12% of
global market share, [once joined]," he said. "That is not a
lot. There is still room for consolidation."
In his view, the refractories sector as a whole –
an industry worth some $20 billion – is not very large
and is still dispersed in many ways. He used China, a crucial
producer and consumer of refractories, as an example of an
industry he described as "extremely unconsolidated."
Raw materials: cycles and strategies
The industry is now facing the dire situation of low
availability of raw materials and high prices for what
product is available, which remains a cyclical issue for the
sector, rather than a structural one, the executive claimed.
"If you have a large company, you cannot adhere to the
cycles [of low and high raw materials supply and prices]," he
told Industrial Minerals.
At the same time, he did concede that the
vertically-integrated nature of both merging companies was
central to the decision to bring them together.
RHI, of which Borgas was CEO until the merger, and Magnesita
share "the same background" in that both are companies that
were structured around the direct control of raw materials.
"This is why the merger makes sense," he said.
And yet, what is happening now in the raw materials market
is indeed driving some significant business decisions for the
In August last year, RHI mothballed fused magnesia (FM)
production at its facility in Porsgrunn, Norway, due to weak
market conditions (the site continued to produce caustic
calcined magnesia). A year later, the company has decided to
restart the FM production lines. The first volumes are expected
in December, prior to a ramp up in early 2018.
RHI must have taken the view that running the Norwegian FM
line will now be economical in the long term, in order to
justify the investment to re-establish production at the site,
market participants have said to Industrial
While Borgas did not directly comment on magnesia pricing
trends, he did tell Industrial Minerals that the outlook for
raw materials has indeed changed – possibly, for
"The days of dirty, cheap raw materials from China are
finished," he said. "[The Chinese] are putting an end to that
[by controlling pollution and industrial practices]."
This view was echoed by others in the industry.
"The market had been artificially low for a number of years,
due to the low price/high volume export strategy of China," a
refractories producer attending the October conference in
"We are seeing the end of it, though. Some prices going
around now may be too high, but they have been too low for
years. There will have to be a readjustment."
This adjustment may come in the form of reduced overall
output from China toward the international market in the
future, leading to prices firming on higher levels compared
with previous years.
In turn, this may create new appetite for raw material
originating from outside of China that could help compensate
the lower output from the largest producer.
"If China cuts off output further, production will shift
elsewhere," said Borgas, who added that, after a transition
period of two or three years of volatility, supply would
eventually find a new normal between China and rest of the
"The consolidation of mines in China is the first step
toward that," he said.
While the main discourse around the refractories sector is in
raw materials, the executive stressed that the focus of RHI
Magnesita is in finished products. "Our raw materials
business is mainly directed to internal use – we
sell very little," he said.
This applies to the current situation of market tightness
and high prices. Borgas made clear that he would rather put any
raw material volumes to use in-house to deliver higher
production, than sell the material at stellar prices on the
spot market for a quick return.
"We are more focused on creating product, and on ensuring a
guarantee of supply to our customers," he said.
|RHI Magnesita’s Porsgrunn fused magnesia
RHI was aiming to restart FM production at its
facility in Norway in December, the company told IM.
RHI’s Norwegian plant would start producing
FM again has
been a main point of discussion among industry
over the past few months, as the shortage of the
intensified in major consuming markets.
Integration and end markets
The first priority during the integration of RHI and
Magnesita was communication with existing customers, so that
clients knew who to go to if they had inquiries or wished to
An adjustment of the now-combined supply chain will be
undertaken, which will last for as long as 12 months. This
process will see the rationalization of capacities and
logistics terminals, the closing of double or redundant
operations, and shifting production where needed.
Two or three manufacturing sites will be closed as part of
the process, Borgas confirmed to Industrial
Minerals. These plants have been identified, but their
locations have not been disclosed.
As separate companies, RHI and Magnesita had steelmaking as
their leading end market, so the new company will be no
different. Around 68% of the entire business will be focused on
steel, while around 30-35% to other sectors, including cement,
lime, aluminium, glass, copper and nickel.
Globally, the steel market has gone through a stark
restructuring phase in the past few years, owing to
overcapacity in China and widespread low prices.
Despite further cuts in capacity expected in the near
future, especially in China, Borgas is adamant this will not
affect the company’s steel-focused business.
"We think steel is an attractive market, and will remain
so," he said. "[Despite the ups and downs in steel prices and
capacity cuts,] our business is not really volatile because we
depend on output."
Refractories supply to steel factories is determined more by
steel output, rather than by capacity or prices. Output has
been less volatile than prices and production is increasing.
This is why the business stands on solid ground, he
"Let me tell you: we still see room for growth in steel," he